Specialty pharmacies proliferate, along with questions

1of3Megan Short holds Willow, who needs medications daily to survive. The family cannot order a refill until her monthly supply is nearly gone.Photo: Jessica Kourkounis /New York Times

2of3Megan Short measures out doses of medication vital to the survival of her 1-year-old daughter, Willow. The medication comes from a specialty pharmacy. The specialty pharmacy business, by one estimate, grew to $78 billion in sales last year from $20 billion in 2005. But as specialty pharmacies proliferate, questions are emerging about their role and business practices.Photo: Jessica Kourkounis /New York Times

3of3The Short family — Liana, 7, Mark Jr., 3, Megan; Willow, 1, and Mark Sr. — prepare to release balloons in celebration of Willow's successful heart transplant a year ago. Getting the toddler’s lifesaving medicine refilled before her supply runs out is a stressful experience with little room for error, her mother says.Photo: Jessica Kourkounis /New York Times

SINKING SPRING, Pa. — As the end of each month nears, Megan Short frets. Her 1-year-old daughter, Willow, cannot afford to miss even a single dose of a drug she takes daily to prevent her body from rejecting her transplanted heart.

Because of stringent rules from her drug plan and the pharmacy she is required to use, Short cannot order a refill until her monthly supply is three-quarters gone. Yet processing a refill takes about seven days, making it touch-and-go whether the new shipment will arrive before the old one runs out.

“You just feel like every month, you’re hoping that they don’t mess it up,” said Short, who lives in this town about 70 miles northwest of Philadelphia.

Short is not dealing with her corner drugstore but with a so-called specialty pharmacy, a new breed of drug dispensary that has arisen to handle the exploding number of medicines that cost tens or hundreds of thousands of dollars a year and are used to treat complex or rare diseases such as cancer, rheumatoid arthritis, hemophilia and HIV.

Such specialty medications, as they are called, now account for one-third of all spending on drugs in the United States, up from 19 percent in 2004 and heading toward 50 percent in the next 10 years, according to IMS Health, which tracks prescriptions.

The trend has led to a corresponding boom in the specialty pharmacy business, which by one estimate grew to $78 billion in sales last year from $20 billion in 2005. Insurers, pharmacy benefit managers, hospitals, retail drugstores — even supermarkets — are scrambling to start or acquire specialty pharmacies or to expand the ones they have.

And the pharmacies have an alluring pitch: They promise to help save health plans money by teaching patients how to inject their medicines when necessary, helping them deal with side effects and ensuring the drugs are not wasted. Some studies, usually paid for by the pharmacies themselves, show that patients served by specialty pharmacies are more likely to keep taking their medicines and have better health outcomes than those dealing with a retail pharmacy.

“We generally find that people have high satisfaction rates with any specialty pharmacy, and a lot of that is because they’re getting very hands-on, personalized care,” said Dr. Alan M. Lotvin, an executive vice president at CVS Health, whose specialty pharmacy Short uses.

But as specialty pharmacies proliferate, questions are emerging about their role and business practices.

Interviews with patients, patient advocates and doctors suggest that specialty pharmacies do not always live up to their billing. There can be onerous refill policies that require hours on the phone, shipments that are delayed or error-ridden, and difficulty reaching a pharmacist or other representatives.

Moreover, many patients are limited to one specialty pharmacy — often one owned by their insurer or pharmacy benefit manager and requiring delivery of drugs by mail. That leaves patients without options if they are dissatisfied.

Consumer Watchdog, a consumer advocate group, has sued four insurance companies over their policies of restricting the pharmacies that patients can use to obtain drugs for HIV. Three of the companies — Anthem Blue Cross of California, UnitedHealthcare and Aetna — have since changed their policies to provide more options for HIV patients. The most recent of the lawsuits, against Cigna, was filed in April.

There are also questions of potential conflicts of interest, since many of the bigger specialty pharmacies are owned by insurers or pharmacy benefit managers such as CVS and Express Scripts. Pharmacy benefit managers, or PBMs, are supposed to help health plans control drug costs. But will they have the zeal to do that if they are making money dispensing these expensive medicines?

“Forcing people to use a PBM’s own specialty pharmacy creates a situation where the fox is guarding the henhouse,” said David Balto, an antitrust lawyer in Washington. He represents independent specialty pharmacies, some of whom claim that insurers and pharmacy benefit managers funnel business to their own pharmacies, even if others may provide better service.

Yet another issue is that some drug companies are choosing only a few specialty pharmacies to handle their products. That could give pharmacies an incentive to position themselves as allies of the manufacturer more than of the patient or health plan.

Diplomat Pharmacy provides a glimpse into the explosive growth and financial workings of the industry because, unlike many specialty pharmacies, it is publicly traded and not part of a bigger company. Started as a single drugstore in Flint, Michigan, in 1975, Diplomat now is a nationwide business with $2.2 billion in revenue last year and a stock price that has nearly quadrupled since its initial public offering in October.

The average prescription Diplomat fills cost nearly $2,800 in 2014, up from about $1,300 in 2011, in part because of drug price inflation. Of the $2,800, it kept $167, the difference between what it paid for the drug and what it sold it for. That is about 10 times the gross profit of a retail pharmacy, according to Adam J. Fein of Pembroke Consulting, an expert on drug distribution.

However, most of that money was absorbed by the cost of services, such as nurses, that Diplomat provided. In the end, its overall profit margin was not that much different from that of a retail pharmacy, Fein said.

Executives at the specialty pharmacies say their surveys show more than 90 percent customer satisfaction. They say their pharmacists and nurses, who specialize in particular diseases, are more knowledgeable about those conditions than general pharmacists and nurses.

They say the health plans often require patients to use a single specialty pharmacy to keep costs down, just as health plans are limiting the choice of doctors, hospitals and drugs. They also say it is often the health plans that restrict early refills, so that the expensive drugs are not wasted.

Still, executives concede there is room for improvement. Many specialty pharmacies are going through a voluntary accreditation process to demonstrate that they meet certain standards for patient care, such as providing 24/7 customer service.